Sir John Gieve has made clear that he seriously considered backing another interest rate rise at this month’s meeting of the monetary policy committee and came close to voting for a rise before the August increase was agreed.
In an interview with the Financial Times, the Bank of England’s deputy governor for financial stability also said recent oil price falls did not necessarily relieve global inflationary pressures.
Bank watchers are certain to scrutinise closely the comments by Sir John – in his first national newspaper interview since taking up his position in January – in an attempt to determine wheth-er he is a hawk or a dove.
Explaining that he had thought of voting for a rate rise before the August meeting, he added that the decision to raise rates last month had been “clear cut”, and said that at September’s MPC meeting “the issue was should we move again”. The disclosure will surprise some, since while the minutes of this month’s meeting made clear another rise had been touched on, it did not point to a long discussion.
Financial markets expect another ¼-point rise this year in the Bank’s main rate to 5 per cent, principally on the basis of the Bank’s August inflation forecasts, which indicated another rise would be needed to bring consumer price inflation down to the 2 per cent target.
Sir John said: “That all makes perfect sense, but of course, life doesn’t follow the central projection generally.”
Shortly after returning from last week’s International Monetary Fund and World Bank annual meetings in Singapore, Sir John’s view was that inflation remained a central threat to the world and UK economies. “The thing that really struck me about Singapore was the optimism and the confidence of the private sector participants, so the central forecast is for continued growth and that naturally goes with a worry about what that would mean for inflation,” he said.
Sir John argued that with lots of “geopolitical uncertainty”, there was no guarantee the reduction in oil prices was permanent. He said he noticed most world growth forecasts being revised higher. “That in the end will feed through into the level of oil prices and other commodity prices.”
Noting that falling energy prices were a “paradox” since they reduced headline inflation but boosted demand, he said in practice the most recent evidence showed “that maybe price setters are thinking there is more room to widen their margins and pass on their cost increases now”.
His main concern, however, remained higher inflation, where he also saw pressure coming from higher import prices. “It may well be that we’re coming to the end of quite a long period where goods prices were being driven down by globalisation and the absorption of China and India,” he said.